Babcock & Wilcox Enterprises, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request identifies 2021 Q4, this filing reports full-year results, with comparative annual data for 2020 and 2019. B&W supplies renewable, environmental and thermal energy technologies and services.
Financial highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $723.4 million | $566.3 million |
| Operating income (loss) | $20.8 million | $(1.7) million |
| Net income (loss) | $31.5 million | $(10.3) million |
| Net income attributable to common shareholders | $21.8 million | $(10.3) million |
| Diluted EPS | $0.26 | $(0.21) |
| Adjusted EBITDA (non-GAAP) | $70.6 million | $45.7 million |
| Cash used in operating activities | $111.2 million | $40.8 million |
| Cash and cash equivalents at year-end | $224.9 million | $57.3 million |
Revenue increased 27.7%. Operating margin was approximately 2.9%, compared with negative 0.3% in 2020; net margin was approximately 4.4%, versus negative 1.8%. Cost of operations was $543.8 million, or 75.2% of revenue, compared with $400.5 million, or 70.7%, in 2020. The filing does not present a single consolidated gross-margin measure.
By segment, revenue was $156.8 million for Renewable (up 0.4%), $133.8 million for Environmental (up 23.9%) and $433.3 million for Thermal (up 42.1%). Segment adjusted EBITDA was $23.2 million, $11.8 million and $49.1 million, respectively. Consolidated adjusted EBITDA rose 54%, but FY2020 included a $26 million one-time recovery on historical Renewable EPC loss contracts.
Liquidity, debt and capital
- At December 31, 2021, total debt was $340.3 million, including senior notes and loans; senior notes had a $326.4 million net carrying value. Notes bear interest at 8.125% and 6.50% and mature in 2026. Interest expense was $39.4 million, and cash interest paid was $20.2 million.
- Cash increased substantially following equity and debt offerings. Cash used in operations was $111.2 million; investing activities used $33.5 million; financing activities provided $302.8 million.
- Current assets were $582.4 million and current liabilities $253.4 million (approximately 2.3x current ratio). The company had a $50 million asset-based revolver, with no borrowings at year-end, and a separate letter-of-credit facility. Debt documents require minimum liquidity of $30 million and include other financial covenants.
- Gross preferred stock outstanding was $191.7 million; it carries a cumulative 7.75% dividend. FY2021 preferred dividends were $9.1 million. Common shares increased substantially after a February offering that generated $163 million net proceeds.
- Defined-benefit pension and postretirement plans had a combined reported funded-status shortfall of approximately $173 million; related balance-sheet liabilities were $182.7 million. The company deferred $20.9 million of 2021 pension contributions under statutory relief.
Material changes and notable items
- Growth reflected higher activity in Thermal and Environmental as projects delayed during COVID-19 resumed, plus the Fosler and VODA acquisitions. Backlog increased to $639 million from $535 million; bookings rose to $779 million from $645 million. Backlog is subject to cancellations, schedule changes and execution risk.
- FY2021 net income benefited from a $48.1 million net benefit from benefit plans, including actuarial gains, and $15.7 million of net gains on asset disposals. It also included a $6.5 million gain on debt extinguishment. Results included $4.9 million of restructuring costs, $5.9 million of transition costs and $4.8 million of acquisition-related costs.
- Acquisitions: B&W acquired 60% of Fosler Construction for $27.2 million cash plus contingent consideration and acquired VODA for approximately $32.9 million. After year-end it acquired Fossil Power Systems for approximately $59.1 million and Optimus Industries for approximately $19 million.
- Management described continued cost reduction and restructuring efforts, plans to pursue growth in renewable and other core technologies, and ongoing evaluation of non-core asset sales and strategic alternatives. No quantitative earnings or revenue guidance is provided.
- COVID-19, travel restrictions and supply-chain disruption delayed projects into 2022 or later. Fixed-price contract cost overruns, subcontractor performance, commodity inflation, customer disputes and the ability to secure bonds and letters of credit remain material risks. Approximately 47% of 2021 revenue was associated with coal-fired power plants.
- Notable matters: the SEC informed B&W in October 2021 that staff did not intend to recommend enforcement action. Glatfelter litigation alleges damages exceeding $58.9 million; the court ruled that, if the contract is valid, damages are subject to a contractual cap of $11.7 million, subject to adjustments. A stockholder action remains in discovery. The company reported no material adverse impact expected from other routine claims.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective. The audit identified revenue recognition on fixed-price long-term contracts as a critical audit matter. The company retrospectively changed certain inventory accounting from LIFO to FIFO.
Important facts for investors to verify
- Whether operating cash flow can improve after the $111.2 million FY2021 outflow, and how much year-end cash is available to U.S. operations; $42.1 million was held by foreign entities.
- Debt-service capacity, covenant headroom, letter-of-credit and surety capacity, and the recurring cost of preferred dividends and note interest.
- Execution and margin performance on fixed-price contracts, including remaining EPC loss-contract warranty obligations and the collectability of subcontractor recoveries.
- Whether the $639 million backlog converts to revenue on schedule and at expected profitability, particularly as pandemic-related delays and supply constraints continue.
- Integration, purchase-price accounting and contingent consideration for acquisitions, as well as financing and returns on the two post-year-end acquisitions.
- Potential outcomes and recorded provisions for Glatfelter, stockholder litigation, pension funding and other disclosed contingencies.